Paul Forward, CFA
Stifel Nicolaus
443-224-1379
[email protected]
U.S. coal production was up 3.7% year over year (y/y) in the week ended February 12, at 20.7 million tons. Overall U.S. coal production is up 3.1% year to date (ytd). Eastern coal production was up 13.9% y/y in the latest week, and up 6.3% ytd. Western coal production was down 3.1% y/y in the latest week, but up 0.9% ytd. For 2011, we estimate that the weekly draw on U.S. coal (i.e., domestic consumption plus net exports) will be 21.6 million tons.
For utility coal stockpile information, we are reporting published information from the Energy Information Administration (EIA). EIA's latest stockpile estimate for December 2010 is 175.3 million tons, 34.0% above the 10-year average but 7.5% below the year-ago stockpile level.
We estimate that stockpiles represented 65.5 days of coal consumption, 29.6% above the 10-year average of 50.6 days for December at month-end. The stockpile total of 175.3 million tons implied a monthly draw of 7.5 million tons vs. the 10-year average monthly draw of about 4.7 million tons during December.
In 2010, U.S. coal markets were in deficit by 24 million tons, driven by year over year increases in domestic power generation of 43 million tons and coking coal exports of 19 million tons. We expect the U.S. coal market will remain in deficit in 2011 by 16 million tons. Our assumptions include an increase in Appalachian output of 1% and Interior output of 4.4% over 2010 levels.
We are raising estimates for Alliance Resource Partners (ARLP) following the company's 4Q10 earnings release and conference call.
Alliance reported 4Q10 earnings per unit (EPU) of $1.82, above our estimate of $1.60 and above the Street consensus of $1.66. EBITDA (earnings before interest, taxes, depreciation and amortization) was $132 million versus our $123 million estimate and the Street consensus of $123 million.
The earnings beat was the result of better-than-expected pricing and sales volumes in Alliance's Central and Northern Appalachian operations, offset by a slight volume and margin miss vs. our estimates in the Illinois Basin. Alliance reported a reduction in quarter over quarter (q/q) costs per ton in each of its operating regions due to reduced workers' compensation accruals which also helped lift earnings during the quarter.